TW Ed questions HMRC's facts and figures for its new residential property letting tax campaign.
HM Revenue & Customs (HMRC) has announced a "campaign" that focuses on persons letting residential property. HMRC claims to offer more favourable terms to those who come forwards during the campaign, to settle outstanding taxes from earlier years. We have previously warned that campaigns need to be considered carefully.
There are one or two points of note:
HMRC apparently estimates that there may be as many as 1.5 million 'residential' landlords who are (presumably in aggregate) underpaying as much as £500million tax every year. It is difficult enough to believe that there are 1.5 million landlords who let residential property, let alone 1.5 million residential landlords who aren't paying enough tax.
This campaign will last much longer than previous campaigns - HMRC says that it will be open for "at least" 18 months.
However, HMRC also says that, from next year, they will start to contact landlords and those whom they contact will no longer be able to benefit from the campaign. Which suggests that the eligible period of the campaign may be rather shorter for some, than for others.
HMRC also says that, unusually, the opportunity to come forwards will last throughout the campaign. Normally, campaigns are split in two: a period where the taxpayer notifies HMRC that he or she intends to make a disclosure, and then a subsequent period in which the taxpayer must make full disclosure and, broadly, settle up.
It seems likely that HMRC's change of approach when compared to earlier campaigns is predominantly attributable to the unprecedented and, frankly, incredible scale of the target population. Practically speaking, it must be questionable whether or not HMRC has the resources to process 1.5 million disclosures even within 18 months, and this despite the fact that the taxpayer is doing most of the work.
From a technical perspective, one has also to question the veracity of comments attributed to Marian Wilson, HMRC's Head of Campaigns, amongst them:
"All rent from letting out a residential property or holiday home has to be declared for Income Tax purposes"
Presumably, Ms Wilson is aware of HMRC's own guidance which clearly states that a tax return (or notification) is not required unless there is actually a tax liability – after Personal Allowances, etc.; likewise the Rent a Room scheme does not need a tax return in order to be claimed– the exemption is effectively automatic until the threshold is breached. Ms Wilson’s comments seem more than a little at odds with the normal HMRC approach, which is to ask for a tax return only when there is something (tax) in it for them.
Given that HMRC seem keen to shake some landlords out of the campaign long before it has officially finished, one might be forgiven for looking look askance at "support" and "help" in HMRC's statement that they will work with "a variety of bodies over the next few months to develop tools and guidance to support landlords, and to help them get their affairs up to date". Only time will tell whether “working with bodies” means developing channels to communicate information to landlords, or simply approaching letting agents and related intermediaries, and demanding information with menaces.
HMRC is keen as always to raise the profile of its “digital intelligence system”, “Connect”, which it uses to suggest possible suspects. One of its champions told me recently that it is now one of the biggest databases in Europe. Tax advisors will of course know that HMRC has long had access to data on landlords from councils and housing associations; I understand that HMRC has for some time been approaching estate and letting agents to obtain details of landlords on their books, and procuring information from Internet portals such as “Rightmove”. Given the vast amount of information it must now contain on all UK taxpayers and the use to which it is being put, it seems a shame HMRC wasted the opportunity to call it “Big Brother”, or “HAL”.